Assessing Brazilian macroeconomic dynamics using a Markov-switching DSGE model

Abstract

Abstract The goal of this paper is to evaluate the behavior of the main parameters of the Brazilian economy through the estimation of an open-economy dynamic stochastic general equilibrium (DSGE) model using Bayesian methods and allowing for Markov switching of certain parameters. Using the DSGE model developed by Justiniano and Preston (2010) and the solution method of the Markov switching DSGE (MS-DSGE) model proposed by Farmer et al. (2008) , this paper found a superior fit in the data of Markov switching models, rejecting the hypothesis of constant parameters in DSGE models for the Brazilian economy.